Sell and Rent Back: Advantages & Disadvantages
The sell and rent back scheme is where a homeowner sells their own property, either to an individual or company, and rents it back from them for an agreed rental figure paid at a set time each month.
This selling option has proved a very popular technique over the last few years and although the benefits far outweigh the negatives, some homeowners have not found this option to be of great benefit. Infact some homeowners have been left in a worse situation than before which need not have been the case. For this reason, this article has been written to help people understand the problems which can arise and how they can easily be avoided as well as talking about the many benefits.
First of all the advantages...
Avoid repossession
This is by far the biggest reason why people enter into a sell and rent back agreement. Although banks are supposed to be helping homeowners by giving them some extra time to pay their mortgages, it really is not the case for most people. Falling behind with mortgage payments does one of two things. Firstly it harms the credit rating and secondly it forces the bank into action. Before too long you are receiving letters, court dates and finally eviction dates from a judge causing undue worry and stress.
No matter what stage the repossession process is at, there is always a solution with the sell and rent back option. A repossession order can be stopped within 24 hours allowing the buyer sufficient time to complete on the property transaction.
Resolve financial problems
There are many reasons for facing financial problems and all are personal to each homeowner. The sell and rent back scheme provides a vital solution if access to money is required quickly as the transaction can be completed in as little time as 7 days.
Discreet sale
A sale and rent back to the purchaser will be done without the need of an estate agent. This means there are no For Sale sign boards outside the property informing all the neighbours that the house is being sold.
Credit rating saved
Most people do not know that when their home is repossessed they don’t just lose the property; they also lose the chance to borrow any money from banks, building societies or other credit companies for 6 years. A black mark is put against their credit rating informing everyone not to lend to this person.
No need to move
After the sale has completed, the homeowner stays living in the property as a tenant.
Rent is paid to the home buyer in return for this and the homeowners have no disruption to their lives. This provides valuable peace of mind as there is no stress of having to find somewhere else to live.
Release equity
This mostly relates to older people who have been living in a property for many years and have built up a large amount of equity. Prior to the sell and rent back solution the only way to access this equity was to sell the property and move out. Now, equity can be released without having to move.
Quick getaway
Relocation or emigration happens all the time and being a homeowner can be a big problem if speed is of the essence. Use the sell and rent back option to free up this problem and work out a suitable period of time with the home buyer to rent the property back. As soon as the time arrives to leave there are no ties at all.
Now onto the disadvantages...
Rent increases
This is common place with the sell and rent back scheme. Although everything looked rosy when the deal was done, after the initial period of tenancy is complete (usually 6 months) the rent is increased. There is no law at the moment stating how much rent can be charged for a property so the landlord can raise it to whatever they desire. This often forces the tenant to move out.
At Beese Properties we have a policy to inform all sell and rent back tenants what the rent increases will be for up to 5 years and can provide this in writing. The rise is usually inline with inflation and to date has never been more than 5%.
Not your own home any longer
Obviously now the home has been sold, even though you are still living in it as a tenant, you are not the home owner any longer. Many people forget this and still treat the property as they would as if it were theirs. A tenancy contract has been signed between the tenant and the landlord who bounds them by these rules and they must maintain the property to a good standard at all times.
At Beese properties, we allow you to treat the property as if it were still your own home. We never interfere and only get involved when we are called with a problem which requires fixing.
Property can be sold at anytime
Although a tenancy agreement has been provided, this will only be for a maximum of 12 months. When the contract has expired the landlord can sell the property at any time forcing you to have to move out. You will have no say in the matter.
At Beese Properties we provide a restriction of sale agreement which states that the property can not be sold without the written consent of the previous owner. This is signed by both parties and is a legal document.
In conclusion, although there can be disadvantages to selling a property and renting it back, provided everything has been agreed prior to the sale and put down in writing there can never be a problem. Sell and rent back has been the solution to helping thousands of homeowners in both the U.K and U.S.A.
